Looking Beyond the Minimum Wage

May 22, 2014

by Stephen Lerner

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Josh Adams, right, chants with other protestors outside of a McDonald's in Memphis, Tennessee, on Thursday, May 15, 2014, while demonstrating for a $15 minimum wage and the right to form a union. (AP Photo/The Commercial Appeal, William DeShazer)

Of course we should absolutely raise the minimum wage. We should raise it in our cities, towns, states and federally. We should use any public entity that has the authority to raise the bottom — like for federal, state and local contracts — and we should then demand that private companies follow suit. Morality, decency and basic economics all call for lifting the wages of the lowest paid workers.

Communities of color lost 60 percent of their wealth in the 2008 economic collapse.

But raising the minimum is not enough and absent a serious challenge to how wealth and power is maldistributed in this country, may prove a fleeting and potentially short-term victory. Communities of color lost 60 percent of their wealth in the 2008 economic collapse. Just this year, Wall Street gave themselves bonuses greater than the total wages of a million minimum wage workers. Since the 2008 economic crash, 95 percent of the economic gains have gone to the top one percent. If we don’t have a grander, bigger, bolder vision of what is possible and needed, a newly raised minimum wage could also become the maximum wage for increasing numbers of workers whose pay and standard of living is being driven ever downward.

We know parts of the story only too well. Over the last 40 years the economy and politics of the country have been remade. Wealth and power are increasingly concentrated in the hands of the top one tenth of one percent. The miserably low minimum wage, impact of tax cuts for the rich and defunding of the government — they are all just part of a much bigger story. The economy is increasingly “financialized”— financial institutions are increasing their size and influence at every level of the government and the economy. Wall Street continuously coming up with ingenious ways to extract wealth from every part of the economy — has driven the growing wealth divide in our country.

One way to think about what has happened is that a massive redistribution machine was created and set loose on our country (and internationally). With each passing day it is increasingly sophisticated in finding new tricks, skims and scams to concentrate wealth into the hands of fewer and fewer people.

How does the wealth redistribution machine work?

First, outsourcing and subcontracting: In the 1970s, corporations were faced with rising wages for unionized workers and the growing success of the civil rights and women’s movements in challenging poverty wages, job segregation and discrimination. The redistribution machine started experimenting with the most vulnerable workers by subcontracting and outsourcing jobs. By hiring another company to pay and supervise janitors, cafeteria and other low-wage workers, corporations found they could avoid the pressure to promote workers of color and raise wages. Instead, they cut pay and eliminated benefits, while dodging any legal liability or moral responsibility for their actions. By subcontracting and outsourcing they were technically no longer the employer and could drive wages lower, all while still maintaining functional control of the work.

Second, de-unionizing and disaggregating work: As a result of mergers, acquisitions and leveraged buy-outs, there is greater corporate control, concentration and monopolization at the top. At the same time, work has become increasingly disaggregated — meaning workers are rarely directly hired or paid by the entity that ultimately controls their jobs and wages. Unionization rates have plummeted. Practices that were once used to cut the pay of the poorest workers are now the norm, spreading to increasing numbers of workers throughout the economy. Workers who organize unions find the entity that signs their check is often — ready for this? — a marginal subcontractor or franchisee of an outsourced subsidiary of a massive private equity firm, hedge fund, or other corporate entity, that is insulated legally from being picketed by workers. Corporations got the best of both worlds — control and no responsibility.

Third, profiting by driving people into debt: The brilliance of the redistribution machine is that in sucking wealth out of workers’ pockets, it created a new market through which it could transfer more wealth to the already rich. Short of money to pay bills, tens of millions took out usurious payday loans; communities of color were targeted for predatory home equity loans and mortgages; and credit cards with exploding interest rates and bank overdraft fees drained hundreds of billions from people’s pockets. Forty million people now have $1.2 trillion in student loan debt — 115,000 retirees have their social security checks garnished to repay student loans every month. The redistribution machine’s answer to declining wages is to loan you money.

Fourth, feeding on tax dollars and gorging on government: The city of Los Angeles pays more than $200 million a year in fees to Wall Street, $50 million more than it spends on street repairs. Nowhere has the redistribution machine’s creativity been clearer than in how it uses political power to defund government largely through corporate loopholes and bad tax policy; and then it turns a profit through complex schemes to finance, privatize and lend to the very government it helped to defund. There is $6 trillion in government spending every year and Wall Street has used privatization schemes, outrageous fees, interest rate manipulations, price fixing and predatory public loans products — like the interest rate swaps that helped bankrupt Detroit — to capture and transfer to the super-rich as much of the public’s money as possible.

So what to do if raising the minimum wage is essential but not enough?

We need to consciously and systematically use the momentum, energy and excitement generated by campaigns to raise the minimum wage — as the base and launching pad — to expose and slow the redistribution machine. Minimum wage campaigns can and should be the entry point for a bigger call to not only raise the bottom but challenge the very idea that the elite rich should dominate the political and economic life of the country.

We then need to look at opportunities to go on offense to reverse the massive redistribution in wealth that plagues our country. For example:

Using eminent domain: Cities of all sizes can modify mortgages for homeowners who are underwater and begin to rebuild wealth in communities of color and working class communities.

Refinancing federal loans and eliminating the Wall Street profit from higher education: Wall Street rakes in billions through publicly financed Pell grants at for-profit colleges; interest and fees on private loans; servicing, fees and debt collection of federal loans; and lending to higher education institutions that borrow money in the face of defunding. Refinancing existing loans and getting Wall Street out of higher education could save students and tax payers billions of dollars.

Renegotiating with Wall Street: Cities can band together and demand that Wall Street cut what some have estimated as $50 billion in fees that are draining much needed public revenue. Cities pay Wall Street two percent management fees for managing pension funds (even if Wall Street loses money), they pay for “letters of credit,” “remarketing fees,” the list goes on and on. Cities could use their combined economic clout to negotiate lower fees and less Wall Street profiting off of tax dollars.

Transforming major contract negotiations for the public good: Public sector unions and community groups can join together and use major contract negotiations to demand that cities, school boards and states stop wasting taxpayer money on complex interest rate swaps — and risky pension fund investments in hedge funds and private equity firms — that allow Wall Street to pay themselves outsized fees and deliver minimal returns to tax payers.

Holding corporations legally accountable: Cities and states can pass laws that hold corporations accountable for the working conditions throughout their supply chain, including for subcontracted workers and create conditions that increase the ability of workers to organize unions.

Reinventing and reestablishing the strike: This is the critical weapon workers need to confront, disrupt and force negotiations with the corporations at the top of the supply chain.

There has never been a better moment to challenge inequality. Let’s learn a lesson from the super-rich: they’ve created innumerable innovations to siphon off wealth; now it’s our turn — to create innumerable innovations to slow, stop and reverse the redistribution machine.

Stephen Lerner is a fellow at Georgetown University’s Kalmanovitz Initiative and the architect of the Justice for Janitors campaign.

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